Aug 26, 2016: Majority of the solar manufacturers in the global industry that have been boosting production seem to be in a dilemma as they are now undergoing a looming glut of panels. This has led solar companies to face dire consequences. JinkoSolar Holding Co, Canadian Solar and Trina Solar Ltd are the major solar suppliers increasing output at plants that will enlarge worldwide capacity by 18% in 2016, according to industry sources.
The solar manufacturers are captive in a competition to construct bigger and more superior factories to crank out panels quicker and cheaper. As soon as the manufacturers begin rolling offs the lines, demand starts to fall, particularly in China where the government rolled back subsidies recently. In addition, costs are slipping and suppliers anticipate margins to slip too.
The industry faced a similar boom-bust cycle after capacity increased faster than demand, setting off a two-year slump initiating in late 2011. The consequence was a signal of consolidation as prices sunk. Additionally, cheap panels helped spur demand for more solar power, ultimately prompting the survivors to enlarge production.
The solar companies fight for market share and their objective is to put up more and more capacity, which will eventually drive down costs and margins for everybody, according to a senior analyst. Canadian Solar is building 350-megawatt capacity in Brazil, while JinkoSolar is increasing output from a 450-megawatt plant in Malaysia.
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This comes as demand reduces in China, the world’s chief market, where the government is dipping subsidies for solar firms commissioned after June 30 that fueled numerous projects in the first half of 2016 as developers added 22 gigawatts prior to the expiry of the subsidy, according to industry analyst.
The solar manufacturers in China undergo tougher competition owing to a supply capacity boost and a decline in market demand. To be clear, demand for solar is progressing to rise, but that expansion is slowing. Global installations in 2016 might reach about 67 gigawatts, up 27 % as compared to 2015, according to New Energy Finance. In 2017, it is likely to rise by 25%, and in 2018 it is expected to reach 23%.
It is extremely difficult to identify whether supply has already concealed demand as companies won’t report whether their shipments have been impacted by the condensed subsidy in China till the fourth quarter. Proof is increasing, however, that the surplus has already marked its way.
Whilst manufacturers may have known they were heading toward a glut, it is not simple to take their foot off the gas. Several production costs are fixed, thus cutting output would drive down margins and wear down their market share.
A ray of hope
Canadian Solar is one of the few solar firms that have declared that it is scaling back its manufacturing growth, adding 5.8 gigawatts of capacity in 2016 as against the early target of 6.4 gigawatts. Canadian Solar’s objective in 2016 is to play safe, not to develop market share, but to advance the company’s margin structure, according to a chief spokesperson from Canadian Solar.
It is indistinct how long a supply surplus might last. It may take two years to work through surplus capacity. The main concern is how the firms react, whether they take a careful move or continue the competition to build more solar capacities, according to industry analysts.